The Nexus Between Ukraine, Energy Security, and Russia

The conflict between Ukraine and Russia in the Donbass region has been examined through a number of lenses. Some pundits see it as a cultural conflict between the West and the East, while others see it as a military conflict between NATO and Russia, and others still view the conflict as a political one between democracy and authoritarianism. These perspectives provide assistance in explaining the conflict, but oft neglected in these discussions is the extent to which energy security has played a role in the conflict.

 

Energy security has played an important role in Russo-Ukrainian relations since Ukraine became independent in 1991. History shows that whenever Ukraine has distanced itself from Russia, Russia has responded by restricting natural gas exports. After independence Ukraine had massive debts to pay on natural gas it purchased from Russia. Unable to pay these debts, Russia in 1993 agreed to lower payments in return for the stationing of Russian troops in Crimea. 2004 saw the protests of the Orange Revolution in Ukraine against the rigged election of pro-Russian President Viktor Yanukovych. The next year Russia responded by first increasing the price of gas and then fully cutting off supply to Ukraine on the first day of 2006. The two countries hastily signed a five-year contract which was shortly vitiated. In 2008, a dispute over gas emerged again, with gas cut off for the first two weeks of 2009, in what many believed was an attempt by Russia to put pressure on the increasingly pro-Western Ukrainian government. The pressure worked: Ukrainians angry at their government’s failure on energy security voted for pro-Russian Viktor Yanukovych. In April, Yanukovych negotiated with Russia to drop the price of gas in return for extending the lease of the Crimean naval base to 2042. In 2013 energy security played an important role again, with Russia offering Ukraine a financial package that included a promise to drop the price of gas, in order to entice Ukraine away from its Association Agreement with the European Union. This package resulted in Ukraine cancelling the Association Agreement, which subsequently led to the Euromaidan protests, the fall of the Ukrainian government and the subsequent Russian military intervention in Crimea and Eastern Ukraine. Some have argued that Russia’s decision to take over Crimea and foment unrest in the East was an attempt to prevent Ukraine achieving energy independence.

 

Since the start of the war in Ukraine, many have applauded Ukraine for reducing reliance on Russian natural gas. Such praise largely derives from statistics provided by Naftogaz, a Ukrainian national oil and gas company, which show that “no gas was imported from Russia in 2016.” These statistics, however, mask Ukraine’s continued dependence on Russian natural gas. The top three countries from which Ukraine imports its natural gas do not develop most of their natural gas domestically, instead importing it via pipeline from Russia. Consequently little has changed: rather than gas from Russia coming directly across the Ukrainian border, it now goes first to one of Ukraine’s neighbouring states and then crosses into Ukraine where it is registered in government statistics as coming from that country rather than Russia. This is likely done by the Ukrainian government to appease citizens angry with the Russian government. As of yet, Russia has not cut its gas supply to these countries. This is likely due to record low gas prices. Already bringing in less revenue, Russia cannot afford to cut its gas supply to European countries. However, should gas prices increase, Russia might decide to leave Europe in the cold, an act that would have significant effects on the Ukrainian economy and possibly foment greater unrest. During the 2009 gas dispute, a lack of natural gas led to a shutdown of the steel and chemical industry, both of which are the backbone of the Ukrainian economy and continue to be its primary exports.

 

For Ukraine to forge an independent foreign policy it must develop energy independence from Russia. Ukraine must do so soon, for it has a rare window of opportunity. With low gas prices, Russia is less likely to punish Ukraine’s attempts to develop energy independence, since doing so could result in a response from Europe that would further reduce its revenue. Historically, Russia has disrupted supplies of natural gas when the price has been high, such as in 2005-6 and 2008-9, when prices nearly broke records.

 

Ukraine is investing significant efforts towards energy independence, most notably with its recent announcement to develop a solar farm at the site of the Chernobyl nuclear disaster. Ukraine, however, must shift some of its focus away from supply and towards demand and consumption. Ukraine has the least efficient use of energy in Europe, which suggests that small levels of investment will result in substantial reductions in consumption. One estimate is that improving energy efficiency in Ukraine could reduce its energy use by 50%. The International Energy Agency has outlined a number of policies that can increase energy efficiency in Ukraine, including collecting and analyzing data, modernizing the electricity network, and requiring minimum performance standards. Trans-Atlantic countries also have a role to play. Much political debate has concentrated on the merits of providing military aid while neglecting a discussion on energy investment. Trans-Atlantic countries can support Ukraine through investing in the Ukrainian government’s recently announced Energy Efficiency Fund, denouncing attempts from the Russia oil company Gazprom to bribe Ukrainian politicians, and ensuring that dispute settlement mechanisms are readily available in the event that Russia decides to cut the supply of gas. Through such efforts, Ukraine can achieve energy independence.

 

Photo: Gas production launched at Bovanenkovo field via TASS. Public Domain Kremlin


Disclaimer: Any views or opinions expressed in articles are solely those of the authors and do not necessarily represent the views of the NATO Association of Canada.

About Aidan Simardone

Aidan Simardone is a junior research fellow at the NATO Association of Canada, providing in depth coverage for NATO's Arc of Crisis. He is currently completing a Master of Global Affairs at the Munk School of Global Affairs, University of Toronto. His areas of interest include peace and conflict, extremism, and the Balkans. He also writes for the Organization for World Peace.